Buying a Business? 5 Must-Follow Steps
Buying a business is a business activity where an entrepreneur or an experienced business owner, instead of starting a new business from the scratch, buys an established organization or business involved in the particular service or products the owner is interested in.
Buying a business has its share of advantages like:
- Steady income from a loyal customer base
- Established groundwork and credibility – easy access to loans
- Well trained and experienced employees – reduced training costs
However, there also several disadvantages of buying a business:
- More effort required to maintain the reputation in the market
- More costly to buy an existing business than to start a business from the scratch.
There are numerous points which deserve your consideration before making a decision. You should practice caution at each and every level of the buying process. You must thoroughly research the business, its owners and the present market environment. Make sure that the business is thriving and is expected to improve. You should consider various aspects of a business like its inventory, balance sheet, business outlook and future prospects.
5 Major Steps in Buying a Business:
- Select the type of business – The first step is to decide the kind of business you are interested in. It could be any sector or a particular product. You should pay serious consideration to these things before you continue. Do a self-assessment of your preferences and abilities. Make sure that you would be able to manage the business successfully. Other important things to consider are location, size and financial investment.
- Research the companies – The next step is to do research on different companies within your industry from various sources. Some of the options are:
- Newspapers - Newspapers have classified business columns where normally businesses are listed for sale.
- Internet - There are several businesses which advertise about other businesses for sale. Business brokers - There are various business brokers who can provide information about businesses on sale. They can also help you with the buying procedure.
- Networking - You can consult with industry professionals and specialists for advice or for more information. You can either use your own circle of friends who are in touch with them or you can approach them on business networking websites.
- Evaluate which company is best – You should research more on the company you want to buy. You should know why the business is up for sale, growth in the past few years, impact of decisions taken by the management, financial conditions, assets and reserve.
- Gather Funds – If you do not have the required funds you can choose among some of the popular sources of financing –
- Installments - You have to make partial payment with some interests over a period of time. If your seller agrees, this is the best option.
- Angel Investors/venture capitalists - These people can help you with the finance if they trust your business model or if they know you. They are also called sleeping partners as they do not interfere with the day-to-day operations of the company. Even if the business is not making profits you do not have the worry about paying debts.
- Business loan - You can a business loan from various reputable banks or financial institutions. You should have some collateral to offer and a good revenue history.
- Prepare sales agreement – After all the necessary negotiations, the final step is to prepare the sales agreement. Take help from experienced professionals to prepare the documents. The document should contain all the necessary steps involved in this process.
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